Morgan Stanley has become more optimistic about U.S. IT hardware after concluding that surging memory costs are having an unexpected effect on enterprise spending. Instead of waiting for component prices to decline, companies are accelerating purchases of servers, storage and PCs, while the rapid expansion of artificial intelligence infrastructure is adding another powerful source of demand.
Hardware sector upgraded from Cautious to In-Line
Analyst Erik Woodring raised Morgan Stanley’s U.S. IT hardware industry rating to In-Line from Cautious as part of a broader reassessment of the sector.
Hewlett Packard Enterprise and Pure Storage were upgraded to Overweight, while NetApp moved to Equal-weight. Teradata was downgraded.
The changes mark a notable shift after Morgan Stanley had previously expected elevated component costs to restrict the recovery in enterprise technology spending.
Woodring admitted the firm “had been on the wrong side of the enterprise hardware trade,” as the expected slowdown in purchasing failed to materialise.
Enterprises increasingly fear further price increases
The central change in Morgan Stanley’s thesis concerns the impact of memory-chip inflation on corporate purchasing decisions.
Companies increasingly regard higher memory prices as “a multi-year structural headwind,” rather than a temporary spike that can be avoided simply by delaying orders.
As a result, enterprises are moving purchases forward to secure current pricing on PCs, servers and storage infrastructure.
Woodring labelled the phenomenon “Fear of Missing Procurement.”
The dynamic means rising component prices are effectively accelerating some hardware demand rather than destroying it, at least in the near term.
AI capacity expansion adds another demand catalyst
Artificial intelligence infrastructure spending is reinforcing the procurement trend.
Morgan Stanley’s AlphaWise survey suggests that purchases being brought forward, combined with additional AI capacity requirements, could drive server and storage growth “to all-time survey highs in 2027.”
The need to support increasingly demanding AI models is forcing enterprises and cloud providers to expand both computing and storage infrastructure.
Against that backdrop, Morgan Stanley now ranks storage as its preferred area of hardware exposure, followed by servers and then PCs.
Morgan Stanley lifts earnings forecasts
The stronger demand assumptions prompted the firm to raise earnings expectations across the OEM companies it covers.
Morgan Stanley’s EPS forecasts for 2026 and 2027 now sit approximately 9% to 12% above Wall Street consensus estimates.
That gap reflects the firm’s belief that accelerated procurement and AI infrastructure expansion could generate stronger earnings than investors currently expect.
Hewlett Packard Enterprise and Pure Storage are among the companies Morgan Stanley believes are particularly well positioned within the changing environment.
Valuations create a growing risk
The firm’s more constructive outlook comes with an important qualification.
Morgan Stanley believes the current advantages are “primarily cyclical,” rather than evidence of a permanently stronger growth profile for hardware companies.
The sector has already experienced a substantial rerating, with hardware stocks gaining more than 100% since the start of 2025.
Valuations are consequently elevated by historical standards, increasing the risk of a sharper market reaction if earnings expectations stop rising.
Procurement boom could eventually create a slowdown
The biggest longer-term concern is that today’s accelerated purchases could borrow demand from the future.
Companies buying hardware earlier than originally planned may require fewer systems later, potentially creating a slowdown once the procurement rush runs its course.
Morgan Stanley therefore sees the possibility of the hardware cycle beginning to turn during 2027.
Woodring identified a peak in earnings estimate revisions as the firm’s “call to get more cautious again.”
Until that signal emerges, however, Morgan Stanley believes rising memory costs and the AI infrastructure buildout are creating enough near-term demand to justify a more favourable stance on U.S. hardware stocks.
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